Use of Almost Ideal Demand System (AIDS) to estimate the consumer demand of agri-food in Tanzania

Clare T. Sepetu, Tiggs Bernard

Abstract

This paper focused on consumer demand system of agri-food in Tanzania. The study investigated on the budget share of agri-food, estimated own price and income elasticities of demand of agri-food consumed by the households in Tanzanian context. The Almost Ideal Demand System (AIDS) was employed to estimate the consumer demand system of agri-food. The empirical results revealed that households’ food budget share was 60% on average per month. The own price elasticity of demand for aggregated agri-food was inelastic (0.86). Income elasticity of demand for aggregated agri-food was 0.96. Moreover, inelastic demand of own price elasticity of agri-food products informed the government intervention in terms of agri-food price stabilization policies and programmes. Furthermore, income elasticity of < 1 suggested that interventions of Tanzanian government in terms of ‘income support policies’ can be done by increasing the incomes of lower and middle class income earners in rural and urban areas as consumers’ economic stimulus package to increase normal food consumption. In rural areas where majority of farmers dwell, this can be done by promoting the price of farm products through minimum support price so that farmers can earn much more incomes from their economic activities as a result they can use it for purchasing normal food from the business sector.